The disabled and pensioners now receive free bus travel across Scotland, with no restrictions on when they can travel. The bus operators receive 73.6% of the average adult single fare for each journey by a pensioner or disabled traveler. The concessionary travel scheme was capped in February 2010 to £174.2m in the next financial year, rising to £187m in 2012/13. This report will consider different aspects of exploring how markets work and more specifically – free bus travel for pensioners and disabled people in Scotland. First of all, this report will look at demand and supply analysis and the effects of the free bus travel for pensioners and disabled people on the market for train journeys, market for taxis and market for visitor attractions will be explained, then the opportunity cost of the current policy and the advantages and disadvantages of this system will be introduced and finally, a critical evaluation of different arguments and our recommendations for the future will be given. This topic is very relevant to the economy and society today as there are huge budget cuts being made right now and the government has to reconsider every single penny to allocate the funding to the most necessary issues.

Demand and supply is the relationship between the quantity of a commodity that producers have available for sale and the quantity that consumers are willing and able to buy. Demand depends on the price of the commodity, the prices of related commodities, and consumers’ incomes and tastes. Supply depends not only on the price obtainable for the commodity but also on the prices of similar products, the techniques of production, and the availability and costs of inputs. The effect of the current free bus travel scheme on market for train journeys, market for taxis and market for visitor attractions using the demand and supply analysis will now be explained.

Effect on market for train journeys –

Substitution effect refers to the change in quantity demanded of a product resulting exclusively from a change in the price when the consumer’s real income is held constant. The substitution effect can be seen with the market for train journeys as the pensioners and disabled people will choose the cheaper service, in this case the free bus travel.

First the demand goes down (D1 shifts to D2) and the supply stays the same, the price goes down (P1) so that train journeys could stay in the market and when there is not as much demand , the supply goes down as well (S1 shifts to S2) when, therefore the prices go up (P2) and it balances out.

Effect on market for Taxis –

Secondly, the effect of the free bus travel scheme on the market for taxis is that demand goes down a little bit (D1 shifts to D2) and supply stays the same while the price goes down (P1) as well and when the price is down more people want to use taxis so the supply is decreased (S1 shifts to S2) and the price goes up again (P2).

Effect on market for Visitor attractions –

And thirdly, the free bus travel scheme effect on the market for attractions is that the demand goes up (D1 shifts to D2) while supply stays the same and the price also goes up (P1), when there’s more demand than supply, the supply increases (S1 shifts to S2) and the price goes down (P2) creating a new equilibrium.

The group looked at some arguments for and against changes the government could make to the scheme in order to save money. The suggested changes were:

restricting concessionary travel to off-peak times

closing the scheme to those between the ages of 60 and 65

imposing a limit on the total number of journeys that users may undertake

There are positive and negative sides to each of these changes that need to be taken into consideration.

If concessionary travel were restricted to off-peak times, those pensioners who can afford to pay for their bus ticket and choose to travel during peak times despite having a free pass for off-peak times would contribute towards the funding of the scheme. Buses that are already filled to capacity in the morning and evening would not be even more overcrowded because free bus pass holders perhaps would wait to travel during off-peak times rather than pay the full price of a ticket. This means that regular, paying customers would not have to look for alternative transport methods to get to and from their place of work in a time-efficient manner during these times. This change would also lead to a more even distribution of traffic – buses would get used more during off-peak times and there would not be a need for additional buses during peak times.

On the other hand, restricting concessionary travel to certain times of the day would also restrict bus pass holders who rely on free travel in their freedom. Scheduling early morning appointments, for example for medical tests that need to be done on an empty stomach, would become more difficult. This change could also have a negative impact on family care, as pensioners might not be able to bring their grandchildren to school or look after them if their parents have to work early in the day.

The consequences of the government closing the scheme to those between the ages of 60 and 65 appear largely positive at first. Many people in this particular age group are still employed and thus can still afford to pay for public transport. It is also likely that senior citizens who are still working or have just retired would still be physically active regardless so there is no need for the government to give a free bus pass to them as an incentive. They might also still drive themselves and might not rely on public transport as much as elderly pensioners who do not drive anymore.

However, it needs to be taken into consideration that not all people between the ages of 60 and 65 still work. For these people this change to the scheme could again have a negative effect on family care. They would also seem to be the most likely to do voluntary work and be the most active and productive out of all pensioners, however, they might not be willing to volunteer at all if they have to pay to travel to and from their place of voluntary work. If this change were implemented, it would also be uncertain how much money the government would save as everyone above the age of 65 could still travel as much as they wanted, and as people get older and older this could mean that the government would end up paying more regardless.

On the contrary, if the government were to impose a limit on the total number of journeys that users may undertake, it would know how much money it could save as it would know exactly how much money it would spend if all free bus pass holders were to undertake all their allowed free journeys. Adding to that, no age group would be deprived of free travel. Pass holders might make their journeys more efficient and save them for more important trips rather than use them to take the bus one stop down the street. They might also be more active because they might want to actually make use all their free journeys before they expire at the end of the month.

On the other hand, this change might discourage people from doing voluntary work because they might want to use their journeys for something they personally enjoy more. It could also negatively affect tourism. As has been pointed out in the third graph earlier in the report, the demand and thus the supply for tourist attractions go up if there is a concessionary travel scheme. However, if people could not undertake as many journeys anymore, there would be less demand for tourist attractions and therefore too much supply. Limiting the number of journeys users may undertake might also lead to people saving their journeys instead of using them in case they need them for something important, only to have them expire at the end of the month. This might discourage pensioners from being active.

In addition to considering the upsides and downsides of these suggested three changes, the group also thought of recommendations to the government on how the scheme could be made more financially efficient.

Free passes could only be made available to people who rely on public transport to contribute to society, for example through voluntary work, leaving discounted tickets or a limited number of free journeys to those who do not. The government could make off-peak travel free, but charge a reduced price for peak time tickets, or limit the number of free journeys but make them usable on all public transport, and give pass holders a limited number of taxi vouchers per month. Travel could be discounted during the week and free on weekends, or free during the week but full price on weekends. The government could also give one day-travel ticket per week to pensioners, but encourage local councils to organise free day trips on the weekends that only a limited number of people could sign up for. This way, pensioners would still be able to run their errands during the week and get the chance to be active on the weekend. Free bus passes could also only be made available to those with low pensions.

This report has considered various effects of the free bus travel for pensioners and disabled people on the economy, including explanation of the effects of this policy on different markets using the supply and demand analysis; the opportunity costs of this policy have been presented; the advantages and disadvantages of this policy have been considered and alternative schemes have been examined, as well as future recommendations have been made. There are many different alternatives that government could implement instead of the current system, for example, they could introduce new schemes or they could re-evaluate the opportunity cost of this scheme, for example, invest in road repairs or in old peoples’ houses. There are also improvements to be made to the current system that have to be considered as we suggested when discussing the disadvantages of the current free bus travel for pensioners and disabled people system and our recommendations for future. Similar schemes could also be introduced, for example, the government could impose a limit on the total number of journeys that users may undertake.

The benefits of the current system in our view definitely outweigh the costs because the UK’s ageing population is providing a multi-billion pound boost to the country’s economy each year. People aged between 60 and 80 contribute more than £59bn annually to the UK economy in taxes, volunteer work and family care, according to the largest study of older people ever carried out. And the approximate 185 million a year for free bus travel is not that much at all, compared to their 59bn pound contribution to the economy.